On cotton subsidies: Brazilians critical of Lamy decision

Brazil has received encouragement in its struggle against U.S. cotton subsidies, and from the most unlikely source. Their enthusiasm comes from a study by the U.S. Congressional Research Service, released Oct. 25, which states that U.S. subsidy programs intended to help soybean, cotton, corn, rice and other cereals are potentially vulnerable to challenges by other countries in the WTO.

This vulnerability was exposed with the expiration of the so-called Peace Clause. Until the beginning of 2004, the United States and other developed countries were protected by the mechanism of the agricultural agreement within WTO that made legal actions against subsidies avoidable under certain conditions.

The CRS statement also says a partial U.S. policy reform, such as the U.S. Doha Round proposal to reduce U.S. amber box spending by 60 percent would provide only a modest reduction in adverse effects in international markets.

The CRS is commissioned to provide non-partisan research to members of the U.S. Congress. With the Democrat sweep of Congress in November, the research document could be a point of discussion in meetings over the U.S. international agricultural policies.

Although Brazil won its fight and an appeal against American cotton subsidies, Brazil is not happy with the progress toward removing subsidies. In October, the country denounced WTO's director-general, Pascal Lamy, for playing the U.S. side by ordering the replacement of judges in Brazil's case against the United States.

Brazil had claimed the United States has done nothing to fix the problem and America promptly called for new judges. The claim was that the original judges from Australia and Poland are nationals of third parties interested in Brazil's win.

Lamy nominated former Mexican ambassador Eduardo Perez-Motta as chair for the compliance panel. The two other members are Chilean ambassador Mario Matus, an original member, and South Korean trade official Ho-Young Ahn.

Brazil sees Lamy's decision as a move to help United States dodge the $4 billion in retaliation the country faces if it loses the dispute. Brazil has termed this a “terrible precedent at WTO.”

According to the Washington Trade Daily, the United States cited DSU (Dispute Settlement Understanding) — Article 8.3 which states “citizens of members whose governments are ‘third parties’ shall not serve on a panel concerned with that dispute, unless the parties to the dispute agree otherwise.” The United States did not agree.

American officials said that the Brazilian government rejected “efforts of cooperation,” and said Lamy's choices were for the “appropriate composition of the panel.”

Recently, Brazil offered its own growers — cotton growers included — about $500 million in payments in addition to cheaper loans to help pull them out of losses due to lack of funding, bad loans and low prices.

Many Brazilian diplomats who work within the WTO feared this could be used against Brazil. They worried that the United States would present this aid package as proof that Brazilians growers are also highly subsidized by the government.

Brazilian diplomats have produced an OECD (Organization for Economic Cooperation and Development) study that showed that Brazilian subsidies were far under the international ceiling of 10 percent of the gross national product. Combined with the comments from the CRS, Brazil's diplomats think they'll be able to breath easily in the event of a challenge.